In the new issue of Regulation, economist Pierre Lemieux argues that the recent oil price decline is at least partly the result of increased supply from the extraction of shale oil. The increased supply allows the economy to produce more goods, which benefits some people, if not all of them. Thus, contrary to some commentary in the press, cheaper oil prices cannot harm the economy as a whole.

Two long wars, chronic deficits, the financial crisis, the costly drug war, the growth of executive power under Presidents Bush and Obama, and the revelations about NSA abuses, have given rise to a growing libertarian movement in our country – with a greater focus on individual liberty and less government power. David Boaz’s newly released The Libertarian Mind is a comprehensive guide to the history, philosophy, and growth of the libertarian movement, with incisive analyses of today’s most pressing issues and policies.

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Tag: central planners

Donald Berwick may have mastered the science of health care management and delivery. (I for one would jump at the chance to enroll my family in the Berwick Health Plan.) But his recent oped in the Washington Post shows he has yet to absorb the lessons that economics teaches about government planning of the economy, such as through ObamaCare.

Berwick, whom President Obama recess-appointed to be administrator of the Centers for Medicare & Medicaid Services (CMS), sets out to defend ObamaCare from a fairly devastating critique by Robert Samuelson a few days earlier. Berwick responds, in essence, nuh-uh:

I saw how this law is helping tens of millions of families and is finally putting our health-care system on the right track…I have seen how improving care can reduce costs dramatically.

Berwick fails to see the world of difference between those two statements. Yes, in his private-sector work, Berwick has helped hospitals save more lives, kill fewer people, and save money in the process. I’m pretty sure he has saved more lives than I ever will.

But all he saw from his perch at Medicare’s helm was people happy to receive checks from the government, and a bunch of well-meaning bureaucrats setting goals. He did not see the costs imposed by those subsidies. As for goal-setting, this one sentence captures it all:

The CMS, for example, has set ambitious goals to reduce complications that, if met, would save 60,000 lives and $35 billion in just three years.

If. Met. A recent Congressional Budget Office review of Medicare pilot programs showed that Medicare bureaucrats set goals all the time. They never achieve them.

Berwick’s claim that ObamaCare “cracks down hard on waste and fraud” because “Last year the government recaptured a record $4 billion” is even more ridiculous. The official (read: low-ball) estimates are that CMS loses $70 billion per year to fraud and improper payments. The best evidence suggests that wasteful spending approaches $200 billion per year in Medicare alone. All that money that comes from you, John Q. Taxpayer. Berwick knows all these things. Yet he thinks you should be impressed that recovering a measly $4 billion is the best the government has ever done.

Berwick would never tolerate such willful blindness, shoddy reasoning, and (surprise!) poor results if it were his own money on the line. Which is exactly the point. In a free market, people spend their own money. At Medicare, Berwick spent, and ObamaCare continues to spend, other people’s money.

That is the main reason why markets are smart and government is stupid. And why otherwise smart people like Berwick can afford to keep their eyes shut.

What I am calling social democracy is, in its form, very different from socialism. Under social democracy, laws and regulations are issued piecemeal, as flexible responses to the side effects of progress — social and economic problems — as they arise, one by one…. The case-by-case approach is supposed to be the height of pragmatism. But in substance, there is a striking similarity between social democracy and the most utopian socialism. Whether through piecemeal regulation or central planning, both systems share the conceit that modern societies are so legible that the causes of their problems yield easily to inspection. Social democracy rests on the premise that when something goes wrong, somebody — whether the voter, the legislator, or the specialist regulator — will know what to do about it. This is less ambitious than the premise that central planners will know what to do about everything all at once, but it is no different in principle.

Yesterday, the Washington Post reviewed the life of Phyllis McClure, who was an advocate for federal education spending in low-income neighborhoods.

Once an aspiring journalist, Ms. McClure joined the NAACP Legal Defense and Education Fund in 1969. She immediately used her penchant for muckraking to illuminate the widespread misuse of federal funds meant to boost educational opportunities for the country’s neediest students.

The money was part of the new Title I program, created under the Elementary and Secondary Education Act of 1965. The slim volume that Ms. McClure wrote in 1969 with Ruby Martin – ‘Title I of ESEA: Is It Helping Poor Children?’ – showed how millions of dollars across the country were being used by school districts to make purchases – such as a Baptist church building in Detroit and 18 portable swimming pools in Memphis – that had little to do with helping impoverished students.

The authors charged that money meant for poor children was being used illegally by school districts as a welcome infusion of extra cash to meet overhead expenses, raise teacher pay and other such general aid. In addition, they wrote, districts were using Title I funds to continue racial segregation by offering black children free food, medical care, shoes and clothes as long as they remained in predominantly black schools.

That all sounds rather familiar–state and local governments misusing federal aid dollars. As I’ve written about at length, there was an explosion in federal aid for the states in the 1960s, with hundreds of new programs established. But huge problems developed almost immediately–excessive bureaucracy and paperwork, one-size-fits-all federal regulations stifling local innovation, and the inability of federal aid to actually solve any local problems.

Aside from the misallocation problem, academic evidence suggests that state and local governments mainly offset federal spending for poor schools by reducing their own spending on poor schools. Poor schools end up being no further ahead.

The federal aid system is crazy. Even if federal aid is a good idea in theory–and it isn’t–the central planners haven’t been able to make it work as they envisioned in more than four decades. The federal aid system has simply been a giant make-work project for the millions of well-paid federal/state/local administrators who handle all the paperwork and regulations.

Even if federal aid was constitutional or it made any economic sense, it will never work efficiently. Aid will always be a more wasteful way of funding local activities than if local governments funded activities by themselves. Aid will always be politically misallocated by Congress. Aid will always involve top-down regulations from Washington that reduce local flexibility and innnovation. And aid will always undermine federalism and the American system of limited government.

A couple weeks ago, I blogged about the foolishness of press release economics: states “creating” jobs by handing out taxpayer money to select businesses. I concluded by saying that “journalists should be on the lookout for more press-release economics schemes coming from the states as revenues remain tight and politicians become desperate to demonstrate they’re “doing something.” Journalists should examine a state’s tax structure when a taxpayer giveaway is announced to see if perhaps the governor is masking economic-unfriendly fiscal policies.”

Sure enough, the Pew Center’s Stateline.org has an article up detailing the efforts of state governors dealing with the recession by giving businesses taxpayer money to “create” jobs. Of course, it would make more sense for a state to simply reduce the tax and regulatory burden on a businesses looking to expand or relocate operations within its borders. But then state politicians might miss out on the short-term benefit of issuing fluffy press releases that are particularly helpful when a state is bleeding jobs.

Stateline notes that “You’d never know Michigan has the nation’s highest unemployment by visiting the Michigan Economic Development Corporation’s Web site, which trumpets a string of successes in recent months that have resulted in thousands of jobs in a state battered by the decline of auto manufacturing.” And in neighboring Indiana, the state’s economic central planners are celebrating the “creation” of 50 jobs at a corndog and fritter manufacturer. Anyone familiar with Hoosier waistlines knows there’s no shortage of corndogs in the state to justify taxpayers having to subsidize their production.

However, Stateline reports that Wisconsin officials are targeting Minneapolis-St. Paul manufacturers with a study that shows relocating to west central Wisconsin would save the Minnesota businesses millions of dollars due to lower worker’s compensation costs, corporate income taxes, and property taxes. Whatever else Wisconsin’s economic development bureaucrats are up to, this is the right idea.